The Australian Taxation Office has sent out a warning advising that it is issuing letters to taxpayers informing them of potential personal liability for company tax debts under the Director Penalty Notice (DPN) program. The notice sent on 28th March is the strongest message on debt enforcement that we have seen from the ATO so far in the recent times of the COVID pandemic.
What did the ATO announce?
“Directors will be notified that we are considering issuing them with a DPN, which makes them personally liable for the debts of their business if the company does not actively manage their debt.
Our focus is on making directors aware of their obligations and personal liabilities, and the actions we may take if they don’t engage. We will be providing clear pathways for clients to re-engage, work with us, and avoid escalation.”
What else do you need to know about the Director Penalty program?
The purpose of the Director penalty regime is if a company does not meet its pay as you go (PAYG) withholding, goods and services tax (GST) or super guarantee charge (SGC) obligations, the ATO may recover these amounts from the individual listed as the director personally as a director of the company. Unpaid PAYG, unpaid GST, Superannuation, Wine equalisation tax and luxury car tax are all covered in this program.
Entry into a “payment plan” as an option to prevent a company director from being personally liable for unpaid company tax debts after receiving a DPN is no longer an option. Within 21 days from the date of a DPN a director must do one of the following:
- Pay the liability in full
- Put the company into liquidation
- Put the company into administration
- Appoint a Small Business Restructuring Practitioner
Where from here?
The best way to protect and manage ATO risk in your business or client base is to be pro-active.
- Discuss with your accountants or the ATO to organise for the director to be entered into and satisfy a repayment plan (which necessarily extinguishes the debt) or take steps to address solvency issues by appointing external administrators to either:
- formally restructure debt (through a Small Business Restructure or Deed of Company Arrangement); or
- wind-up the Company’s affairs
